US R&D credit covers US research only - not your Vancouver team

Cross-Border R&D: SR&ED + US Section 41

Canadian founders raise US venture capital, set up a Delaware C-Corp, then claim the US R&D credit on engineers who actually sit in Vancouver, Surrey, or Bangalore. Those wages don't qualify for Section 41 - and the error blows up in due diligence. We split your research spend across the border the right way.

Optimize My R&D Credits How It Works
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Quick answer

Can a US C-Corp claim the R&D tax credit for engineers working in Canada?

No. The US Section 41 research credit only counts qualified research wages for work performed inside the United States, so a Delaware C-Corp cannot claim US R&D credits on developers who actually sit in Vancouver, Surrey, or Bangalore. Founders who raised US venture capital make this error constantly, and it surfaces painfully in due diligence when an acquirer's advisors disallow the credit and reopen the tax position. The good news: that same Canadian research usually qualifies for Canada's SR&ED program, which can refund a meaningful share of eligible salaries. The right approach is to split your research spend by where the work physically happens — claim US Section 41 on US-based researchers and SR&ED on the Canadian team — supported by contemporaneous documentation and clean intercompany agreements. We allocate the spend correctly across the border so both credits survive scrutiny on exit.

The Geography Trap

The US and Canadian programs reward research in their own borders. Treating them as interchangeable is where founders lose money - or claim credits they can't defend.

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US Section 41 Credit

  • →Only qualified research performed in the United States counts
  • →Wages for engineers physically in Canada or India do not qualify
  • →Qualified small businesses can offset up to $500,000/yr of payroll tax
  • →Incorrect claims are a classic due-diligence and audit landmine
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Canadian SR&ED

  • →Rewards research performed in Canada by your Canadian team
  • →Can be refundable for Canadian-controlled private corporations
  • →One of the most generous R&D incentives available
  • →Frequently under-claimed when founders fixate on the US side

How We Optimize It

  • Map every research dollar by geography and by activity across US, Canada, and India
  • Allocate Canadian-performed work to SR&ED and qualifying US work to Section 41
  • Set up the Section 41 payroll-tax offset election for pre-profit US entities
  • Document the split so both claims survive an investor or IRS/CRA review
  • Coordinate with your cross-border entity structure so the credits actually land

R&D Credit FAQs

Can I claim the US credit for engineers in Canada?
No. Section 41 only covers qualified research conducted in the United States. Wages for engineers physically in Vancouver, Surrey, or India do not count toward the US credit, and claiming them is a common error that surfaces in due diligence or audit.
What can those Canadian wages qualify for?
Canadian research may qualify for SR&ED, one of the most generous R&D programs in the world, which can be refundable for Canadian-controlled private corporations. The right move is SR&ED for the Canadian team and Section 41 only for qualifying US work.
Can a pre-profit startup benefit?
Yes. A qualified small business can elect to apply the Section 41 credit against payroll taxes, currently up to $500,000 per year, delivering cash even before profitability. Only qualifying US-based research expenses count.
How do you split the spend?
We map research spend by geography and activity, allocate Canadian work to SR&ED and qualifying US work to Section 41, and document the split so both claims are defensible - maximum non-dilutive cash, minimum audit exposure.

Claim Both Credits the Right Way

A call covers where your team sits and how to maximize SR&ED and Section 41 without audit risk. No commitment.

[email protected] +1 (206) 209-8210